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Dick's Stock Tumbles Offside

Posted: Nov 12, 2008 13:29 PM by Glenn Curtis

Tickers in this Article: DKS, FL, HD, LOW, TGT, WMT

Dick's Sporting Goods (NYSE:DKS) competes against retailers like Modell's and Sports Authority for customers in search of everything from soccer cleats and golf balls to tennis rackets and camping gear. But in a down economy that has consumers tightening purse strings and eliminating spending on non-essentials, the sporting goods giant is facing some challenges.

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A Stadium View
Dick's opened as a bait and tackle shop in the 1940s, but evolved into a chain of retail stores that carries all manner of sports and recreation products. The Home Depot (NYSE:HD) or Lowe's (NYSE:LOW) of the sporting world, Dick's has 357 retail locations as of August 2. Although it may be a prime choice for sports enthusiasts, Dick's has been a bit iffy on the investments front recently. The company has suffered sluggish same-store sales results as well as diminished earnings. For a company that once seemed invincible, Dick's numbers point to signs of trouble ahead.

Analyst Interference
On November 11, a Wedbush Morgan analyst dropped his Dick's rating from 'buy' to 'hold'. The economic slowdown has caused Dick's and its competitors, like athletic shoe retailer Foot Locker (NYSE:FL), to fight tooth and nail to bring in customers. As many consumers choose discount stores Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) over specialty retailers these days, Dick's struggles to increase foot traffic in its stores. However, the pressure the stock has received might be a little premature. (To learn more about analyst expectations and how they affect prices, read Analyst Forecasts Spell Disaster for Some Stocks.)

Field Goal Attempts
Dick's stock tumbled as a result of the overall decline of the market and now trades at 40% of its 52-week high of $33.86. In addition, tax-loss selling could drive the shares even lower in coming weeks. Yet, the company has a few positives working in its favor. First, according to Yahoo! Finance, Dick's is expected to earn $1.29 per share for 2008 and $1.45 per share for 2009. In the current economic climate, it would not be surprising if these estimates get cut. If Dick's earns around $1.00-1.10 per share next year, the gains would be considered pretty good for a stock that trades at about $12. In addition, the company trades at 0.39 times sales and 1.62 times book value - respectable numbers against Foot Locker, which trades at 0.36 times sales and 0.86 times book value.

Insider purchases in recent months signify future gains for Dick's also. Over the last six months, insiders have bought more than 142,000 shares of the stock. While the motive of these investors has not been confirmed, it is not too far-fetched to assume that they would not have purchased the shares unless they anticipated making money on them in the future. (To learn more about what inside transactions reveal about a stock, read Keeping an Eye on the Activities of Insiders and Institutions.)

Furthermore, tax-loss selling most likely will abate by the end of the year and a rebound could ensue.

End Of The 4th
Dick's has become a more attractive pick in recent weeks due to its expected earnings, price-to-sales ratio and price-to-book ratio. In addition, recent insider buying has generated positive speculation that could signal sunnier seasons for the company in the future.

To learn more about analyzing stocks in this sector, read Analyzing Retail Stocks.

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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